Today, 3 Nov 2015, the Reserve Bank of Australia left the cash rate unchanged
There had been much speculation that the recent increases in the interest rates of the big four banks had left the door open for a cut to the cash rate by the RBA. However, the RBA left the cash rate unchanged at 2% for the sixth month in a row.
Some had believed that the increases between of 0.15% and 0.2% by the major Banks and other lenders would reduce property price increases in Sydney and Melbourne enough to enable the RBA to cut the cash rate to further stimulate other areas of the Australian economy but no cut to the cash rate was made today.
Naturally, the property market, particularly Sydney and Melbourne featured in the Statement by Glenn Stevens, Governor: about the RBA’s Monetary Policy Decision as did the changes in mortgage rates and the impact that they are having in controlling risk in the property market and impacts on spending and the wider economy.
Glenn Steven’s statement concludes:
At today’s meeting the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate at this meeting. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. The Board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.Glenn Stevens
The statement by Glenn Stevens about the decision to leave the cash rate unchanged also provide insight into possible actions of the Reserve Bank of Australia in the near future. We can interpret that “scope for further easing of policy” means that, although the cash rate was not cut today, it is very likely that it will be cut in the near future! This is the clearest signal in months that the RBA will make a cut in the near future. With the housing market price gains and banking risk under control it appears that there are few reasons left to refrain from cutting the cash rate. Unless inflation measured by the consumer price index (CPI) increases soon an interest rate cut seems inevitable.
Markets and analysts have also interpreted this as a future cut with interest rate pricing around the possibility of a third cut in the current cycle, in February, increasing to 100 per cent.
By Dr Nigel Abery (Ph.D.)
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